A Model of Sequential City Growth

Abstract

There is strong evidence showing that in most countries cities develop
sequentially, with the initially largest city being the first to grow. This
paper presents a growth model of optimal city size that rationalizes this
particular growth pattern. Increasing returns to scale is the force that
favors agglomeration of resources in a city, and convex costs associated
with the stock of installed capital represent the congestion force that limits
city size. The key to generate sequential growth is the assumption of
irreversible investment in physical capital. The presence of a positive
external effect of aggregate city capital on individual firms makes the
competitive equilibrium inefficient.